Chancellor George Osborne’s eighth Budget was unexpectedly more difficult than he would have envisaged three months ago, with ambitions tempered by a slowdown in global growth and a worsening of the outlook for the world economy.

He told MPs in the House of Commons this lunchtime: “Financial markets are turbulent, productivity growth across the West is too low. And the outlook for the global economy is weak. It makes for a dangerous cocktail of risks.”

The Chancellor cited the independent OBR’s view that the outlook for the world economy is “materially weaker”, pointing to “slower growth in emerging economies like China, and weak growth across the developed world”.

Monetary policy – instead of normalising this year as expected – has been further loosened, referenced Mr Osborne, while the Bank of Japan has joined Sweden, Denmark, Switzerland and the European Central Bank with unprecedented negative interest rates.

In the UK, GDP growth was down 20 basis points reduction to 2.2%, since the Office for Budget Responsibility (OBR) November forecast, which is followed by a fiscal downgrade every year for the remainder of the decade.

The OBR’s revised GDP forecasts for the UK are 2% this year, followed by 2.2% in 2017, and 2.1% in each of the three years after that – forecasts Mr Osborne expressly underscored were premised on the assumption that the UK remained within the European Union.

Capitalising on this new economic picture to make the case for the UK to remain in the EU, the Chancellor quoted the OBR on the Brexit issue: “A vote to leave in the forthcoming referendum could usher in an extended period of uncertainty regarding the precise terms of the UK’s future relationship with the EU.

“This could have negative implications for activity via business and consumer confidence and might result in greater volatility in financial and other asset markets.”

Osborne underlined the point with “Britain will be stronger, safer and better off inside a reformed European Union”, as if to imply ‘now is not the time to leave the EU’.

Back to the slower future expected growth of the UK economy, the cumulative effect of the slower pace of economic expansion, and the subsequent shortfall in tax receipts, is estimated to create an £19 billion per annum black hole in the UK’s finances.

To plug this gap – and keep the Chancellor on track for his much-coveted budget surplus by the end of the decade – an additional £3.5 billion in unspecified government departmental spending cuts were announced.

In addition, Mr Osborne assumed around a £5 billion reduction in the assumed level of annual debt interest payments based on continued lower interest rates, another £5 billion in welfare and other spending cuts plus changes to the corporation tax regime worth approximately £6 billion .

Mr Osborne said he will increase borrowing before 2019/20 ahead of the upwardly revised budget surplus forecast of £10.4 billion in 2019/20, which rises to £11 billion in the following year.

But what does this year’s Budget mean for UK commercial property? CoStar News breaks down the key policy announcements affecting the sector.

Commercial property SDLT reforms

The headline new policy for the UK commercial property industry are the Stamp Duty Land Tax (SDLT) reforms, which will the tax due on smaller properties lowered while increased for higher value properties.

Currently, SDLT rates apply to the whole transaction value. From 17 March 2016 the rates will apply to the value of the property over each tax band.

The new rates and tax bands will be:

0% for the portion of the transaction value up to £150,000;

2% between £150,001 and £250,000; and

5% above £250,000.

Buyers of commercial property worth up to £1.05 million will pay less in stamp duty.

Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million. The Treasury states that more than 90% of commercial property transaction will amount to the same or less SDLT.

Inevitably, small commercial property investors, and their advisers, are pleased while those who advise and represent larger investors are less so.

Neil Morgan, Managing Director, Pub & Restaurants at Christie & Co, the specialist business property adviser, said: “The cut on commercial property stamp duty is a tremendous boost to the sector. Our clients will be saving money from tomorrow. This may give a boost to the leisure and licensed sectors.”

By contrast, John Slade, chief executive of BNP Paribas Real Estate UK, described the SDLT changes as “disappointing” which could “reduce liquidity in the commercial property market”.

He added: “Given the amount that a higher top rate will raise it is doubtful that this is a risk worth taking.”

Melanie Leech, chief executive of the British Property Federation, said plans to increase the highest rate of SDLT would “undoubtedly slow” commercial property investment.

“The real set back in today’s announcement,” Ms Leech added, “is that development in places like the Northern Powerhouse and Midlands’ Engine will now be held back as a result of this out-of-the-blue raid on commercial property transactions.

Elizabeth Bradley, head of the corporate tax team at international law firm Berwin Leighton Paisner, said “the extension of the extra SDLT rate on buy-to-let to large investors will discourage investment in the private rented sector.”

Ms Bradley added: “Overall, increased tax costs will not be offset by the reduction in corporation tax rates to 17% by 2020.”

Alex Barnes, Tax Partner at Irwin Mitchell, said: “SDLT on large commercial property transactions will increase in some cases significantly especially for investors in London and the South East and interest relief will be cut which could have a dramatic effect on the UK property industry which relies heavily on debt funding.

“The commercial property industry an easy target for the Chancellor given the attractiveness over recent years of UK commercial property however, this may, like the high end residential property market, now stall and ultimately cause tax revenues to decrease leaving a bigger hole for the Chancellor to fill going forward.”

Small Business Rate Relief

The Treasury has permanently eliminated Small Business Rate Relief (SBRR) for more than 600,000 small businesses occupying properties with a rateable value of below £15,000.

In addition, a further 250,000 will have their bills reduced because the lower multiplier has been increased from £18,000 to £51,000. An additional 50,000 will benefit from tapered relief.

This will be a popular change by government, which comes into effect from April 1st 2017.

BPF’s Melanie Leech said: “The reform to small business rate relief is one of the most generous aspects of otherwise revenue raising budget and to be welcomed as small businesses are often the lifeblood of local economies.

“We are pleased that the Government has also recognised that the annual uplift in rates should be based on the Government’s own preferred measure of inflation – CPI rather than RPI. This will be tinged with disappointment, however, that it won’t come into effect until 2020, and thus for larger businesses who are struggling any rates relief will be a long time coming.”

For some, though, it just doesn’t go far enough.

Keith Cooney, national head of business rates, Knight Frank, said: “Business rates generate £28 billion per year, and a saving of £1.5 billion does not significantly ease the burden. There is a still a very real risk that our business rates system undermines the UK’s competitiveness within Europe.

“In the long-term fundamental reform is needed, as part of a wider overhaul of the UK’s tax system.

“In the meantime, the changes to the administration of business rates, namely the re-basing of the rates to the CPI and the proposal to look at the introduction of three year revaluations, does at least show the government recognises there is a problem.”

Paul Easton, head of business rates at Lambert Smith Hampton, warns that the new measures run the risk of creating opportunities for “rogue rating consultants” to target these business.

He said: “The question for business of properties assessed just over the threshold is: ‘can I get a reduction so I will qualify?’ Watch out who you appoint.”

A consultation on options for increasing transparency in the property market was also announced, including by increasing the visibility of information relating to options to purchase or lease land.

Other announcements

Osborne’s Budget today gave the green light to the upgrading of northern rail lines and also confirmed the funding of development work for Crossrail 2.

Walter Boettcher, Chief Economist and Director of Research & Forecasting, Colliers International said: “New infrastructure spending and support is welcome, less in terms of direct financial support, but more about the way it demonstrates long-term government commitment to infrastructure to the financial markets and the investment community.

“Unambiguous support for HS3 is long-overdue and will be well received especially by key figures in the Northern Powerhouse.”

The government has confirmed a move to link rates to CPI not RPI.

Jerry Schurder, rates expert at Gerald Eve, said: “The move to CPI will be welcomed by hard-pressed firms – but they will ask why not implement it immediately? By waiting until 2020 to make the change, and sticking with the discredited RPI measure, the Chancellor is unfairly squeezing UK plc for an extra £5.2 billion.

“Whilst welcome, this change will do little to allay ratepayers’ anger with the business rates system. They seek a cut in their excessive rates bills, already the highest local property tax worldwide, not just a moderation of the speed of increase”.

The government is also proposing three-yearly revaluations for rates.

Schurder said: “If implemented following still further consultation, the proposed move to revaluations at least every three years would be a fundamental change that would make the system fairer and more responsive to changing economic circumstances and would be welcomed by businesses of all sizes after many years of campaigning.”

Disappointingly for industry the Chancellor has ignored the calls for reform to the rating system for manufacturers to be exempt from business rates plant and machinery used on their premises.

Elsewhere, Osborne unveiled a a major City Region Deal for Edinburgh and South East Scotland.

Alasdair Humphery, Lead Director for property consultant JLL in Scotland said: “The City Region deal is great news for Edinburgh and the south east of Scotland. With the region’s population set to soar over the next five years, combined with both a shortage of both housing and office accommodation, this investment is crucial to helping the City region achieve its potential.

“Deployed effectively, it should help to create jobs, regenerate industrial sites, support new housing, as well as improving transport infrastructure, all of which is crucial to the economic development of the city and wider region. Delivering a deal that is fit for purpose will depend on a fully co-operative effort from the regional business community, ensuring that the funding is invested where’s most needed.”

The industry was disappointed the Budget did not include an exemption for large-scale property investors from the 3% SDLT surcharge for additional homes,

BPF chief Melanie Leech said: “The government’s decision to not include an exemption for investors who are purchasing large portfolios of properties for rent is extremely disappointing, and deals a huge blow to the build to rent sector.

“This is going to be a significant deterrent to the institutional investment currently poised to settle in the purpose-built rented sector, which has the opportunity to deliver a significant number of new, quality affordable homes.”